China Has “Extensive” Lead Over US …

… in “Numerous” Critical Technologies, DoD Director Says

by Tyler Durden

Zero Hedge (October 31 2019)

It isn’t just trade where China has been beating the US over the last decade.

In fact, those who have been paying attention have surely noticed that the US is now trailing behind China in numerous technologies, like 5G networks, drones, batteries, solar energy, and cryptocurrency.

The role of private the private tech sector in the US is becoming more critical as the country tries to keep pace, according to The Wall Street Journal, who cited a Defense Department official.

Michael Brown, director of the Defense Innovation Unit, a branch of the Pentagon commented that the list of technologies where China has the lead is now “extensive”. And in areas where the US has the lead, it is hardly insurmountable, Brown says.

Brown commented: “A number of them are concerning from a national-security standpoint”.

One example is that the US government and military use drones manufactured by Chinese companies DJI Technology Company.

Brown believes that part of the problem is a lack of government investment in the US. The government’s investment in the military has been on a steady decline since the 1960’s, he notes.

And so that leaves the the work to technology companies in Silicon Valley. Tensions between Washington DC and Silicon Valley can make that partnership difficult, however. Certain companies, like Alphabet, have opposed working on technology that could be used in combat, while other startups worry about the bureaucracy of doing business with the Pentagon. Other companies worry about lucrative commercial deals that could be tossed aside as government projects take precedence.

Google pulled out of a project last year to help the US develop aerial-drone imagery after opposition from its employees.

Brown says that many tech companies don’t want to work with the Pentagon – especially smaller companies focused on building revenue. Brown has helped bring about sixty new vendors, mostly small tech companies, to the Department of Defense since 2015.

He comments that the relationship can be difficult if big companies “crowdsource” their business strategy by listening too much to their employees’ political views while making business decisions.

Brown commented: “The private sector isn’t necessarily going to take the risk to invest in long-term technologies where the payoff is uncertain. That is the role of government.”

Brown also said China’s government-led initiative to tech dominance was a good example to follow.

“The US has been a bit allergic to how China manages their economy with industrial policy”, he continued. He also said that China’s approach is “moving them forward”.

Brown co-authored a Department of Defense paper in 2017 that warned about Chinese investments in private tech startups giving the nation the “crown jewels” of the US. The paper was followed by new policies restricting Chinese investments in startups, but was also criticized as stereotyping Chinese investors as spies.

Which, of course, some of them are – but that’s besides the point, we guess.

Brown concluded: “They are very focused on technology transfer because they see that as a way to economically transform their society. The concern I have is that [the paper] is used too much as a justification for protectionist ideas and not enough for stimulus for further investment”.

Copyright (c) 2009~2019 ZeroHedge.com/ABC Media, LTD

https://www.zerohedge.com/technology/china-has-extensive-lead-over-us-numerous-critical-technologies-dod-director-says

Everything You Wanted to Know about MMT …

… but were afraid to ask

If you read only one MacroTourist post all year, this is the one I want you to read. I think it’s that important.

by Kevin Muir, the MacroTourist

https://themacrotourist.com (January 23 2019)

Today’s topic is sure to incite some pretty strong reactions. There will be cries of “no! that’s just wrong!” from the hard-money advocates. The cynics will proclaim “that’s going to end in disaster” and the pessimists will shake their head in disbelief while muttering something about “the follies of the ivory tower academics” as they walk away.

For some of you, the topic of Modern Monetary Theory (MMT) will be old hat. For others, this will be a new term. For those who are not familiar, I suggest you take some time to learn about this new branch of economic thinking as it is coming to a screen near you.

Although I have an opinion about what is best for our economy and society, I am not here to convince you of anything except the fact that MMT is gaining traction, and to remind you that spending time arguing about its relative merits/detriments will not help your trading or investing one iota.

You see, I try to be like that joke:

 

Dear Optimist and Pessimist, while you were busy debating over whether the glass was half-full or half-empty, I drank it. Signed the Opportunist.

 

I know I am nowhere near smart enough to influence policy. So why even try? Nor do I have any desire. So why bother debating it? Yet I love trying to figure out this great big game we call investing. In that vein, putting your head in the sand regarding MMT would definitely be a mistake.

Let me take you through my journey of trying to understand MMT, and along the way, I hope to maybe help a little with your navigating the coming changes in economic thinking.

It was about a year ago when MMT started popping up on my radar. Realizing that all I knew was what the acronym stood for (Modern Monetary Theory), I reached out to Bespoke’s George Pearkes who is a wealth of knowledge when it comes to economic thinking {1}. You see, I am basically a markets guy. George is a markets guy, but there is also a big part of him that is more pure “economist”.
And George was his typical super-nice-guy self. He guided me to some great resources, but ultimately pointed me in the direction of the face of MMT – Professor Stephanie Kelton from Stony Brook University.

Last autumn Professor Kelton gave a speech at Stony Brook University titled “But How Will We Pay for It?” {3} If you have an hour to spare, this is probably the best introduction to MMT out there.

[As an aside, George and I recently had a chat about MMT on his podcast BespokeCast {4}. Fast-forward to about half-way to get to the MMT stuff.]

Back to my journey of learning about MMT. Apart from being a professor, Stephanie was also the economic advisor for Bernie Sanders’ campaign.

Given the general more right-leaning bias of people in the finance arena, I can already hear the groans and the clicking to the next article. But wait! Before you go and listen to what Alex Jones is screaming about, remember that your job as an investor is not to forecast what should be but rather focus on what will be.

So let’s get to it. What exactly is MMT?

Modern Monetary Theory is a macroeconomic theory that contends that a country that operates with a sovereign currency has a degree of freedom in their fiscal and monetary policy which means government spending is never revenue constrained, but rather only limited by inflation.

This is my layman’s version after reading and listening to everything I could on the subject, but I think I got the gist of it.

MMTers believe that government’s red ink is someone else’s black ink. Sure, the government owes dollars, but they have a monopoly of creating those dollars, and not only that, the creation of more and more dollars is essential to the functioning of the economy.

Here are the policy implications of accepting MMT:

* Government cannot go bankrupt as long as it doesn’t borrow in another currency

* It can issue more dollars through a simple keystroke in the ledger (much like the Federal Reserve [Fed] did in the Great Financial Crisis)

* It can always make all payments

* The government can always afford to buy anything for sale

* The government can always afford to get people jobs and pay wages

* Government only faces two different kinds of limitations: political restraint and full employment (which causes inflation)

The government can keep spending until it begins to crowd out the private sector and compete for resources.

And in fact, Stephanie Kelton argues it is immoral to not utilize this power to fix problems in our society. From an interview she gave,

 

 

if you think you can’t repair crumbling infrastructure or feed hungry kids, unless and until you find some money somewhere, it’s actually pretty cruel because you leave people who are struggling in a position where there are still struggling and they are hurting, and they are not properly taken care of …

 

I know what you are thinking. Sure sounds like socialism.

But MMT is not socialism. Not by a long shot.

MMTers don’t necessarily believe in taxing the wealthy and redistributing it to the poor. Though they do believe the way conventional economics and politicians think about money is wrong.

I know it seems insane to think about the government as not having to worry about deficits and debts. It doesn’t seem to make sense. How can a government just spend money without having to worry about paying it back?

It’s like when Kramer got lost downtown. Remember the terror in his voice when he realized he was at 1st and 1st – where the same street intersects with itself at the nexus of the universe? {5}

But here is another way to think about it. If you have an economy with underused capacity, having the government spend on infrastructure or other societal useful endeavors is actually raising the total GDP of the country.

Yet isn’t that just Keynes theory? Yeah, trying to wrap my head around the difference between Keynes and MMT took me a while, but I think I got it.

Keynesians are still tied to the idea that we are bound by fiscal constraints whereas MMT’ers believe that the only real restraint is inflation.

I heard an economist the other day on Bloomberg say something about the dire state of the global economy because of the stretched balance sheets of the various sovereigns. He said something to the effect of spending will collapse because “who has the capacity for fiscal spending?”

And this is the conventional thinking that prevails almost everywhere.

But MMTers would argue that by not spending now, we will be harming our productive capacity in the future. Ultimately it makes no sense to have economic capacity sitting fallow because of a self-imposed worry about paying back a debt that is denominated in an asset that only the government can create.

But, but, but … won’t that create inflation? Yup! Darn right it will, and that’s the point. MMTers believe that inflation is the only true constraint a government faces.

As I was learning about MMT it made me wonder if Richard Koo (balance sheet recession fame) was also an MMTer. After all his belief in the paradox of thrift causing a self-defeating vicious circle seems straight out of MMT’s theories.

So far I have named all these rather left-wing proponents of MMT, but is it truly the domain of the far left? Well, interestingly, former hedge fund manager Warren Mosler has run for office numerous times as a MMT advocate. I dug up this interesting debate between Warren and this Austrian economist. {6}

And while doing my research, I stumbled on this great interview with Professor Steve Keen titled, “Does Modern Monetary Theory make sense?”

I have greatly simplified MMT – no denying that. There were points when I was reading about the relative slope of the IS curve of Keynesians versus MMTers and I had a slight moment of panic that I was back in my third-year Economics class after having missed the past two weeks of classes.

How about I try to explain MMT in contrast to the policies of the past decade?

Let’s step back and think about what’s happened in our economy since the Great Financial Crisis and then think about how MMT changes the equation.

There can be no denying that the grand credit super-cycle has seen more and more debt being piled on to an ever growing mound. In 2007 it looked like we had hit the Minsky moment when no more debt could be balanced on the teetering edifice, and when the final piece of the Jenga puzzle was removed, it started to come tumbling down. At this point private credit had entered into a deflationary self-reinforcing credit destruction loop which would have resulted in a cleansing reset of the entire system. Yet this would have been extremely painful and it soon became clear that the government didn’t have the stomach to live through this sort of reset. So they flooded the system with money through quantitative easing – much to the howls of protest from the economic and Wall Street elite who insisted this would cause inflation. But much to almost everyone’s surprise, there was almost no inflation – at least little inflation as we generally think about it. There was plenty of financial asset inflation as all that new money pushed down interest rates and caused asset prices to lift, but the average worker saw little benefit from the Fed’s largess. You see, even though the Fed was busy buying everything with a CUSIP, the Federal Government was in the midst of one of the biggest cuts in discretionary spending in the history of the United States.

I try to keep my politics to myself, but I can’t hide my feeling that socialism for the rich is not a fair way to run a society. You can’t have a heads-I-win-tails-you-lose situation for banksters and other well-connected parties, but the moment that the economy starts to gain traction, the Fed needs to tamp down on the brakes for fear of inflation.

Regardless of whether you agree with my view or not, it doesn’t matter.

The public has woken up to the fact that supply-side-trickle-down economics is not helping them anywhere near as much as promised.

You might think these sorts of tax-cutting, pro-business policies are the best thing for our economy. So be it. Reasonable people can have differing opinions. But the tide is shifting away from this belief, so it really doesn’t matter what you, or I, or even the smartest economist in the world believes.

Society’s mood has changed and Stephanie Kelton’s concepts will continue to gain supporters.

If I had told you four years ago that the following picture wasn’t a photoshop, you would have probably told me I was nuts.

Trump was elected due to a profound disappointment with the status quo. It’s easy to forget but even Obama was elected on a platform of hope and change.

Don’t underestimate how pissed off the average American is (and Canadian, Frenchman, Englishman, et al … for that matter). Monetary stimulus with fiscal austerity doesn’t do anything except make the rich richer.

MMT is novel, ambitious, and a little bit scary. I get it. But let me let you in on a little bit of a secret – young people aren’t afraid of trying something new. They know the system isn’t working and are desperately looking for an alternative. I think they found it in MMT …

 

Trading Implications


If I am correct, I suspect we will see many Democrat candidates (perhaps all?) adopt MMT as a tenant of their platform. And here is a crazy thought for you – what if Trump beats them to it?

I have long argued that eventually we will hit a period where governments will spend and Central Banks will facilitate their deficits. MMT provides academic justification of where we all know we are headed anyway.

In one of the interviews I watched with Professor Kelton, she said that the idea of deficits being funded with bond issuance is purely a self-imposed limitation. It’s required by law, but in reality, it doesn’t need to be done. The law can be changed. The government could simply spend $100 while only taking in $90 and directly writing cheques against the Federal Reserve to pay for the $10.

Think about how inflationary this will be! But isn’t that the whole goal?

I have always chuckled at the idea that governments were powerless to create inflation. If they want to create inflation – they can. There just needs to be the political will. And it looks like that will has finally arrived.

So what does this mean for your portfolio?

Although I don’t have any concern about the government funding itself, I do have lots of worry that inflation would quickly rise and before too long, the government would be forced to cut back its spending, and that typical of governments, it would prove much more difficult than instituting spending. Therefore I would expect fixed-income to be a terrible investment under MMT. Even if the government pegs rates low, inflation will be the real risk. It would make little sense to sit in an asset that pays fixed.

To me, MMT would scream that the best course would be to buy real productive assets hand over fist.

Ben Hunt had an interesting piece in his excellent blog Espilon Theory titled, “Modern Monetary Theory or: How I Learned to Stop Worrying and Love the National Debt”. I would argue that he represents conventional Wall Street thinking in terms of his pessimism regarding MMT, but I would like to highlight two terrific points from his writing.

1. Ben believes MMT will gain traction in the coming years; “Like I said, you may not have heard about MMT yet. But you will. You won’t be able to avoid it. Why? Because MMT is the post hoc  justification of both easy fiscal policy and easy monetary policy. As such, it is the new intellectual darling of every political and market Missionary of the Left AND the Right.”

2. He also contends that MMT will switch QE’s inflation in financial assets to inflation in the real world.

I agree with Ben that MMT will change the type of inflation the economy experiences. I will leave it to much smarter people than I to decide if this is a good or bad thing.

In the meantime, in the coming months, quarters and years, watch for MMT to become a much larger source of change for your portfolio and trading. You might think it’s great and that the financial world could use a change. Or you might think it’s terrible and will be a disaster. Doesn’t matter what you or I think. MMT is coming. Ignoring it would be foolish.

I will leave you with two quotes. One from Ben Hunt and one from Stephanie Kelton. They sum up the battle that will soon envelop the political and financial landscape.

Thanks for reading,

Links:

{1} https://twitter.com/pearkes?lang=en

{2} https://stephaniekelton.com/

{3} https://www.youtube.com/watch?v=WS9nP-BKa3M

{4} https://www.bespokepremium.com/think-big-blog/bespokecast-episode-28-kevin-muir-now-available-on-itunes-googleplay-stitcher-and-more/

{5] https://www.youtube.com/watch?v=bb9IA-914Xw

{6} https://www.youtube.com/watch?v=cUTLCDBONok

PS: Here are some other resources you might find helpful in trying to understand MMT.

For those who think that MMT is only the perview of left-wing nutters, here is another former bond trader talking about MMT: https://www.youtube.com/watch?v=N8FhDsuJnvk

Article: http://neweconomicperspectives.org/2013/10/former-dept-secretary-u-s-treasury-says-critics-mmt-reaching.html

Book: https://www.amazon.ca/Freedom-National-Debt-Frank-Newman/dp/1626520380

Book: https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Book: https://www.amazon.com/Modern-Monetary-Theory-Practice-Introductory-ebook/dp/B01EG02ITA/ref=sr_1_3?ie=UTF8&qid=1548118524&sr=8-3&keywords=modern+monetary+theory

(c) 2019 The MacroTourist. Published with Ghost. Theme by Biron Themes.

https://themacrotourist.com/2019-01-23-mmt/

US Debt to China, How Much it is, …

… Reasons Why, and What if China Sells

Why China is America’s Biggest Banker

by Kimberly Amadeo

https://www.thebalance.com (November 24 2019)

The US debt to China is $1.11 trillion as of May 2019 {1}. That’s 27% of the $4.1 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $22 trillion national debt is owned by either the American people or by the US government itself.

China has the greatest amount of US debt held by a foreign country. Japan comes second at $1.10 trillion. It’s followed the United Kingdom at $332 billion, Brazil at $306, and Ireland at $271 billion.

The map below shows a breakdown of the top five countries owning US debt. Combined, they hold 75% of US debt held by foreign countries.

China has reduced its holdings of US debt since November 2013, when it held $1.3 trillion. It wants to allow its currency, the yuan, to rise. To do that, China had to loosen its peg to the dollar. That made the yuan more attractive to forex traders in global markets. China’s economy is also slowing down due to President Donald Trump’s trade war. As China’s exports decline, it’s less able to invest in US Treasurys. The chart below illustrates the breakdown of who owns US Debt.

Long-term, China wants the yuan to replace the US dollar as the world’s global currency. China is also responding to accusations of manipulation. Most countries want their currency values to fall so they can win the global currency wars. Countries with lower currency values export more since their products cost less when sold in foreign countries.

Before February 2014, China had been strengthening the yuan to dollar conversion in response to US pressure. But it reversed course when the dollar rose 25% in 2014 and 2015, creating an asset bubble. Since the yuan’s exchange rate was fixed to the dollar, the increase dragged the yuan’s value up with it. China had to manually lower the yuan’s value to remain competitive with other emerging markets that had free-floating currencies.

In 2018, the dollar began weakening again. When that happened, China could allow the yuan’s peg to the dollar rise without hurting its competitiveness with its neighbors.

China has held more than $1 trillion in US debt every year since 2010. That’s when the US Department of the Treasury changed how it measures the debt. Before July 2010, Treasury reports showed that China held $843 billion in debt. This makes it difficult to make long-term comparisons.

 

How China Became One of America’s Biggest Bankers

China is more than happy to own almost a fifth of the US debt owned by foreigners. Owning US Treasury notes helps China’s economy grow. It keeps the yuan weak relative to the dollar. As a result, Chinese exports are less expensive than US products. China’s highest priority is creating enough jobs for its 1.4 billion people.

The United States allowed China to become one of its biggest bankers because Americans enjoy low consumer prices. Selling debt to China pays for federal spending that spurs US economic growth. It also keeps US interest rates low. But China’s ownership of the US debt is shifting the economic balance of power in its favor.

 

Why China Owns So Much US Debt

China makes sure the yuan is always low relative to the US dollar. Why? Part of its economic strategy is to keep its export prices competitive. It does this by holding the yuan at a fixed rate compared to a “currency basket” of which the majority is the dollar. When the dollar falls in value, the Chinese government uses dollars it has on hand to buy Treasuries. It receives these dollars from Chinese companies that receive them as payments for their exports. China’s Treasury purchases increase demand for the dollar and thus its value.

China’s position as America’s largest banker gives it some political leverage. Now and then, China threatens to sell part of its debt holdings. It knows that if it does, US interest rates would rise, slowing US economic growth. China often calls for a new global currency to replace the dollar, which is used in most international transactions. China does this whenever the United States allows the value of the dollar to drop. That makes the debt China holds less valuable.

 

What Happens if China Called in Its Debt Holdings

China would not call in its debt all at once. If it did, the demand for the dollar would plummet. This dollar collapse would disrupt international markets even more than the 2008 financial crisis. China’s economy would suffer along with everyone else’s.

It’s more likely that China would slowly begin selling off its Treasury holdings. Even when it just warns that it plans to do so, dollar demand starts to drop. That hurts China’s competitiveness. As it raises its export prices, US consumers would buy American products instead. China could only start this process if it further expands its exports to other Asian countries and increases domestic demand.

 

China’s Debt-Holder Strategy is Working

China’s low-cost competitive strategy worked. Its economy grew ten percent annually for the three decades before the recession. As of 2018, it’s growing at almost seven percent, a more sustainable rate. China has become the largest economy in the world, outpacing the United States and the European Union. China also became the world’s biggest exporter in 2010. China needs this growth to raise its low standard of living. Despite its threats, China will continue to be one of the world’s largest holders of US debt.

https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355

The US Navy’s Big Mistake

“Sinking” Billions of Dollars into Aircraft Carriers

The carrier won’t dominate forever. Here’s why.

by David W Wise

Key point: Better to adjust to the new reality before a surprise innovation proves you wrong.

“History”, it has been written, “does not repeat itself, but it rhymes”. Today it’s rhyming with General Billy Mitchell. In the 1920s, Mitchell challenged conventional thinking by advocating air power at sea in the face of a naval establishment dominated by battleship proponents.

The hubris of the “battleship Navy” was such that just nine days before Pearl Harbor, the official program for the 1941 Army-Navy game displayed a full-page photograph of the battleship USS Arizona with language virtually extolling its invincibility.

Of course, the reason that no one had yet sunk a battleship from the air – in combat – was that no one had yet tried.

In fact, Mitchell sank a captured German battleship, the Ostfriesland, in an aerial demonstration back in 1921, but the Navy said that the test proved nothing. Two of the observers that day were officials from Japan.

In addition, the architect of the Pearl Harbor attack, Isoroku Yamamoto, was a student at Harvard at the time and no doubt read accounts of the event that were widely reported in the newspapers.

The aircraft carrier decisively replaced the battleship as the Navy’s sea control capital ship, but its reign in that capacity was, in reality, quite brief. The aircraft carrier established its ascendancy in the Battle of Midway and was the centerpiece of five major sea battles between 1942 and 1944.

Yet, following the Battle of Leyte Gulf in 1944, the US Navy repositioned the aircraft carrier as a platform to project power ashore. The United States did not lose a fleet carrier in the war after the Hornet went down in 1942 because Japan’s surface fleet had been devastated. Nor did Tokyo effectively use its submarines.

That track record, just as the boast in the Army/Navy game program, however, is not an indication that a carrier cannot be sunk – or put out of commission – but rather the fact that since 1945, the US Navy has never engaged another navy in a battle that tried.

“Projecting the past into the future is risky business – especially when we’re unsure what that past was”, James Holmes, a naval warfare expert at the US Naval War College wrote.

Which brings us to today. The US Navy has fallen into a troubling pattern of designing and acquiring new classes of ships that would arguably best be left as a single ship – or at most in limited numbers. It’s also building several types of new aircraft that fail to meet specifications.

The Navy is developing a new class of supercarriers that cannot function properly and has designed them to launch F-35 fighters that are not ready to fly their missions. This is all happening during an era of out-of-control budgets, which bodes poorly for American sea power and leadership ahead.

That the Navy is concentrating larger percentages of its total force structure on large, high signature and increasingly vulnerable ships endanger America’s future. Fortunately, there are better options to the status quo if the Navy moves now.

 

Too Expensive

 

Before asking whether it makes sense to continue to invest in aircraft carriers, we must ask the question of whether we can afford them.

The Pentagon commissioned the USS George H W Bush in 2009 at a cost of $6.1 billion. America’s most recent aircraft carrier, the USS Gerald R Ford, will cost more than double that in constant dollars. The carriers’ air wings cost about seventy percent again the cost of the ship itself.

In an era when personnel costs – including healthcare and pensions – are consuming the military from within, the fact that these craft require 46 percent of the Navy’s personnel to man and support places them in the crosshairs in an extreme budget-constrained environment.

The Center for Budgetary and Strategic Assessments stated that being the most expensive piece of military equipment in the world makes “them a prime – and perhaps even a necessary target – in this era of belt-tightening”.

If eleven carriers – as required by legislation – is the minimum number required to have an effective supercarrier force, then carrier proponents are hoist upon their own petard.

“If our fleet of small numbers is so fragile that it cannot afford the loss of a single ship due to budgeting, how will it survive the inevitable losses of combat?” Commander Phillip E Pournelle wrote in Proceedings.

That day has already come. As of early 2014, the Navy only has ten operational supercarriers. Sequestration delayed the deployment of the Harry S Truman and has the Navy scrambling to come up with funds to refuel the Abraham Lincoln, raising the question whether the latter will ever come back into service.

It appears dubious that the Ford will have overcome major development issues to come into service in 2016.

Furthermore, if sequestration persists, the Navy might have to mothball four of nine air wings, making the discussion of eleven carrier platforms moot. Due to these substantial constraints, the Congressional Budget Office (CBO) and former Secretary of Defense Chuck Hagel both floated the possibility of the Navy going down to as few as eight supercarriers.

The Navy, like the other services, has proven itself incapable of running an effective weapons acquisition program in recent decades. Instead, the services pay increasingly more money for progressively fewer units that often fail to meet original specifications.

The current shipbuilding plan calls for the Navy to have 306 ships while the actual number has dwindled 285. The CBO recently concluded that there is approximately a thirty percent gap between what the Navy would require to meet its shipbuilding plan and what it will likely obtain through the appropriation process.

The Navy’s own acquisitions chief recently told Congress that given the current trends and budget outlook, the Navy could slip to as few as 240 ships in the next several decades.

The commitment to aircraft carriers is literally cannibalizing the rest of the Navy and simultaneously interfering with its ability to meet emerging requirements and threats.

Work began in 2005 on the Ford at an estimated procurement cost of $10.5 billion, which later increased to $12.8 and most recently to $14.2 billion and rising. Unfortunately, as the General Accountability Office (GAO) noted in a recent report – issued when the Ford was 56 percent complete – that “our previous work has shown that the full extent of cost growth does not usually manifest itself until after the ship is more than sixty percent complete”.

Stating that the “plan may prove unexecutable”, the GAO added that the Ford will be unlikely to fill the gap created by the scheduled decommissioning of the Enterprise. Worse, the Ford would “likely face operational limitations that extend past commissioning and into initial deployments”.

The already-stretched multi-year procurement budget assumes that the Navy will spend $43 billion to procure the Ford and two other carriers of this class at the pace of one every five years, which does not include any additional cost overruns.

Unfortunately, cost estimates for the F-35Cs slated to fly off the Ford‘s decks have almost doubled while performance concerns continue to mount.

Calling the Navy estimates “optimistic”, the GAO exhorted the service to “improve the realism” of the budget projections. Meanwhile, the CBO has floated various options including canceling future procurement of Ford-class carriers. The Navy is currently trying to shift part of the funding for completion until after delivery of the first ship in an apparent attempt to obscure the extent of the overruns.

The surface fleet procurement program has suffered a massive disconnect between emerging capabilities and system design. Naval Operations chief Admiral Jonathan Greenert discussed the revolution in precision-weaponry such that “instead of sorties per aimpoint, we now commonly speak of aimpoints per sortie”.

But instead of leveraging this massive improvement in precision weapons, the Ford-class carriers were designed prior to his tenure and the costs have driven through the roof. This was in order to include new, untested technologies that dramatically increased the number of sorties that could be launched even though the performance ratios were going dramatically in the opposite direction.

 

Vulnerable to Attack

The economies of scale that favored the carrier as a force projection instrument were made possible by the ability of such behemoths to operate close to shore with impunity. That age is drawing to a close.

The famed Admiral Horatio Nelson observed that “a ship’s a fool to fight a fort”. In the new age that is dawning, the “fort” is an increasingly sophisticated range of over-the-horizon anti-ship missiles that render surface ships vulnerable, and which will deny them proximity to the coastlines where US carriers have reigned for decades.

These include ballistic missiles fired from a wide range of platforms, including easy to conceal mobile launchers. In a sweeping 2013 paper on the carrier’s future, Navy Captain

Henry Hendrix estimated China could produce 1,227 DF-21D ballistic anti-ship missiles for the cost of a single US carrier.

https://nationalinterest.org/blog/buzz/us-navys-big-mistake-sinking-billions-dollars-aircraft-carriers-96606

What Would Happen if the US Navy Blocked off the Shipping Routes to China …

… and placed an oil embargo against China, like India did against Nepal in 2015?

Can the USA collapse the economy of China?

by Godfree Roberts

Since the US has given China hostages, the People’s Republic of China (PRC) would begin executing them, one at a time. Here they are, handy and ready to be killed: America’s overseas military bases. They’re not American territory, they’re not defensible against missile strikes, everyone is sick of them and they within range of cheap, plentiful, accurate Chinese missiles.

“For every tanker you stop”, says China, “we’ll execute one of your hostages – like Diego Garcia, for example, the base from which your bombers kill civilians every day”.

How will the US respond? Congressmen will urge the US Navy to attack China but, “For every attack on Chinese territory”, says China, “We’ll destroy a city in American territory, starting with San Diego and working up the West Coast”.

And how will the US respond to that? “You wouldn’t dare!” the Congressmen will cry. Your people would not stand for it.

“Oh really?” says China, “Take a look at this:

_____

Godfree Roberts graduated with a EdD. Education & Geopolitics from the University of Massachusetts, Amherst in 1973.

https://www.quora.com/What-will-happen-if-the-US-Navy-blocked-off-the-shipping-routes-to-China-and-placed-an-oil-embargo-against-China-like-India-did-against-Nepal-in-2015-Can-the-USA-collapse-the-economy-of-China

Hugo Salinas Price Explains …

… That It is the International Bankers Who Rule Us

https://www.paulcraigroberts.org (November 30 2019)

On the Source of Authority by Hugo Salinas Price

For the sake of brevity, and because this is not a scholarly article, but only an examination of a theme that must be treated in as few words as possible, it is necessary to make some sweeping generalizations.

From the dawn of history and up until relatively recent times, humanity was governed by kings whose will was law; kings were supported by priesthoods who affirmed that the royal power was divinely instituted. Thus, kings were regularly regarded by their subjects as semi-gods.

One of the exclusive rights which kings have enjoyed throughout history was the creation of money. Historians attribute to Croesus, king of Lydia (a region of what is now Turkey) the minting of the first gold coins, which he used as an incentive to get his soldiers to fight. This was sometime around 500 BC.

Gold, and not silver, was the first money used by humanity because gold was found abundantly in almost pure form in some river beds, whereas silver had to be obtained by processing silver-bearing ores, an activity that came later. Today, small amounts of gold can still be found in river beds.

In antiquity, the production of gold and silver money was considered a sacred activity to be carried out by a priesthood. For instance, Julius Caesar (100 ~ 44 BC) obtained his first political post, as Pontifex Maximus, that is, “High Priest” in charge of the Roman mint.

The divine right of kings to rule was unquestioned up until the end of the Middle Ages in Europe. The kings of France for centuries had become kings by the ceremony of Anointment with a holy balm, applied to them in a solemn ceremony at the Cathedral of Reims.

The introduction of the invention of printing in Europe, by Gutenberg in 1452 initiated the massive reading of books, which had previously been the privilege of the priesthood and of the wealthy, who had been able to purchase small numbers of very expensive, hand-written books.

One of the consequences of this reading of books was that the authority of the Roman Catholic Church began to be questioned by some thinkers, notably by Martin Luther. Eventually, Luther declared himself quite the enemy of the Catholic Church, which led to the creation of Protestantism. The consequence for Europe was a series of bloody wars of religion.

Since it was the Catholic Church which anointed the kings of Europe and invested them with a Divine Right to rule, the schism in Christianity had the effect of weakening the respect of the populations of Europe, for their kings.

In all preceding ages, under “good” kings and “bad” kings, Their Highnesses never considered it their mission, to rule so that poverty and misery could be eliminated from human life.

 

 

An excellent Englishman, Sir Thomas More, disagreed with his monarch Henry VIII, and wrote a book, Utopia (1516), in which he spoke of an invented country, Utopia, where gold was eliminated as money and was used to manufacture “chamber pots”; in Utopia universal joy and prosperity reigned supreme. Through this fashion of thinking, he became one of the first monetary cranks of our civilization.

 

A notable example of the effect of Protestantism upon the rule of kings, was the Puritan Revolution in England: the Puritans under Oliver Cromwell, beheaded their king, Charles I, in 1649; among other reasons, he was despised by the Puritans because he was too conservative regarding the “Royal Prerogative” and the Puritans wanted something new in their Sovereign: a “social conscience” and improved institutions for the advancement of a better society.

In due course of time, there came about the “Age of Reason” of the 18th Century. The leading thinkers of Europe – and of the American rebels in the royal colonies of North America – examined the institution of royalty, and came to the conclusion that Reason should be paramount in political affairs, and that kings had no Divine Right at all, from a rational point of view.

The consequence of this “Enlightenment” brought about by the Age of Reason, was the French Revolution of 1789, during which the King of France, Louis XVI and his queen Marie Antoinette were neatly beheaded by means of the recently invented guillotine.

In spite of the French Revolution, parts of Europe continued to be nominally ruled by kings up until 1914. However, the new way of regarding them progressively diminished the importance and power of the remaining monarchs of Europe. No longer were they regarded with the unquestioned awe of the populations they governed. The thinking of the intellectuals of the French Revolution had changed things forever: kings were no longer semi-divine creatures.

It is important to understand the nature of the political transformation which had taken place, and which, perhaps, few thinkers have noted: the French Revolution changed the perception of the Origin of Authority.

In all of history and up to the French Revolution of 1789, Authority was acknowledged as “originating from Above”, that is to say, from the God-appointed Ruler, who ruled by Divine Right and whose word was Law, on down to the People below him. One of the functions of the Ruler, was to determine and to create the monetary system his people were to use. In no way was it in his power to create a state of affairs where poverty and misery were to be eliminated amongst his subjects, the People.

The thinkers of the French Revolution turned this ancient precedent upside-down, declaring that Authority could not possibly come from a single human considered as a king. They maintained – and it is a position that continues quite unquestioned today – that “Authority originates from Below”: that is to say, from the People, who institute governments in order to improve social conditions and progressively eliminate suffering and want among them, the People.

It is the acceptance of Authority as originating from Below, which validates all legislation in the world today, through the counting of votes. Authority to legislate originates in a majority of votes on the part of registered voters, favoring candidates in an election.

“Authority originates from Below” is the principle espoused by a Democracy, and today, for any nation to be accepted in good-standing by other nations of the world, it must be a Democracy. There are a few Kings left in the world, but they are little more than beloved figure-heads, with no power at all. There may also be a few Dictators, but they find themselves ostracized, and they tend to have short lives.

All governments of any consequence today, are based on the principle of “Authority originates from Below”. This is the condition of the world today, and it is the inheritance left to us by the thinkers of the 18th Century.

One huge consequence of this inheritance has been little noted, if at all: Kings used to rule absolutely, by Divine Right. and their rule only ceased with their death. On the other hand, elected governments come and go, as they respond to the whims of the voters. Presidents come into office, and leave after their terms expire. The presence of the men and women in a Congress is transitory: policies that are validated by one Congress, are regularly rejected by a succeeding Congress.

By their very nature, Governments around the world today are composed of elected individuals whose presence is transitory, and the political decisions of the Congresses cannot possibly lead to consistent and permanent legislation.

“Nature abhors a vacuum” is a principle of physics that also applies in politics, for the vacuum of Authority that characterizes Democracy is filled by another Power, an unelected Power whose presence is worldwide and whose interests are permanent. The eminently reasonable and well-meaning thinkers of the “Age of Reason” who did away with kings, apparently gave no thought to the existence and the permanent and pernicious interests of this Power, the Power that in fact rules our world today.

What is this mysterious Power, that silently overrides all elected Congresses of the world, and sees to it that no legislation can endanger its own interests?

This Power is vested in the International Banks of the world. Presidents come and go, and are forgotten; legislators come and go, and are forgotten; ministers come and go, and are forgotten, but the International Banks remain; their personnel changes over time, but not their interests.

All institutions tend to change to accommodate themselves to changes in the social institutions of the times. But not the International Banks.

Thanks to the elimination of Kings and their royal right to create money, and their substitution with weak, vacillating Democracies around the world, the International Banks wormed their way into actual Sovereignty in the course of the 19th and 20th Centuries. It is the International Banks that rule our world; Democratic governments are nothing more than decorative institutions to mask the true Authority, which resides in the International Banks.

True to their function as the factual sovereigns of our world, the International Banks decide what is the money that the world shall use, and they themselves issue it as they think fit, to retain and increase their power. Of course, they do all this, for the ostensible purpose of improving the economic conditions of the multitudes.

History records that, in the past, there have been bad kings, and good kings – those who looked after the welfare of their subjects, so far as was in their ability to do so.

But International Banks are impersonal monsters, in that they have no regard at all for the interests of humanity: they care only for their own interest, which is to retain as much power as possible.

Real money – of gold and/or silver – proved in the course of time to be obstacles to the unlimited power which International Banks enjoy, and so they have done away with real money, and have proceeded to indebt the whole world with fake money, to such an extent that the world’s debt threatens to collapse – all the while, alleging that their inflationary programs are essential to “progress and economic development”.

The unrestricted greed of the International Banks will be their undoing, and will leave our world totally prostrated.

Copyright (c) 2016 PaulCraigRoberts.org. All rights reserved.

http://www.plata.com.mx/enUS/More/377?idioma=2

https://www.paulcraigroberts.org/2019/11/30/hugo-salinas-price-explains-that-it-is-the-international-bankers-who-rule-us/

China: Rise, Fall, and Re-Emergence as a Global Power

by Professor James Petras

Global Research (October 10 2019)

First published on Global Research in March 2012

The study of world power has been blighted by Eurocentric historians who have distorted and ignored the dominant role China played in the world economy between 1100 and 1800. John Hobson’s {1} brilliant historical survey of the world economy during this period provides an abundance of empirical data making the case for China’s economic and technological superiority over Western civilization for the better part of a millennium prior to its conquest and decline in the 19th century.

China’s re-emergence as a world economic power raises important questions about what we can learn from its previous rise and fall and about the external and internal threats confronting this emerging economic superpower for the immediate future.

First, we will outline the main contours of historical China’s rise to global economic superiority over West before the 19th century, following closely John Hobson’s account in The Eastern Origins of Western Civilization. Since the majority of western economic historians (liberal, conservative, and Marxist) have presented historical China as a stagnant, backward, parochial society, an “oriental despotism”, some detailed correctives will be necessary. It is especially important to emphasize how China, the world technological power between 1100 and 1800, made the West’s emergence possible. It was only by borrowing and assimilating Chinese innovations that the West was able to make the transition to modern capitalist and imperialist economies.

In part two, we will analyze and discuss the factors and circumstances which led to China’s decline in the 19th century and its subsequent domination, exploitation, and pillage by Western imperial countries, first England and then the rest of Europe, Japan, and the United States.

In part three, we will briefly outline the factors leading to China’s emancipation from colonial and neo-colonial rule and analyze its recent rise to becoming the second largest global economic power.

Finally, we will look at the past and present threats to China’s rise to global economic power, highlighting the similarities between British colonialism of the 18th and 19th centuries and the current US imperial strategies and focusing on the weaknesses and strengths of past and present Chinese responses.

 

China: The Rise and Consolidation of Global Power 1100 – 1800

In a systematic comparative format, John Hobson provides a wealth of empirical indicators demonstrating China’s global economic superiority over the West and in particular England. These are some striking facts:

As early as 1078, China was the world’s major producer of steel (125,000 tons); whereas Britain in 1788 produced 76,000 tons.

China was the world’s leader in technical innovations in textile manufacturing, seven centuries before Britain’s 18th century “textile revolution”.

China was the leading trading nation, with long distance trade reaching most of Southern Asia, Africa, the Middle East and Europe. China’s “agricultural revolution” and productivity surpassed the West down to the 18th century.

Its innovations in the production of paper, book printing, firearms, and tools led to a manufacturing superpower whose goods were transported throughout the world by the most advanced navigational system.

China possessed the world’s largest commercial ships. In 1588 the largest English ships displaced 400 tons, China’s 3,000 tons. Even as late as the end of the 18th century China’s merchants employed 130,000 private transport ships, several times that of Britain. China retained this pre-eminent position in the world economy up until the early 19th century.

British and Europeans manufacturers followed China’s lead, assimilating and borrowing its more advanced technology and were eager to penetrate China’s advanced and lucrative market.

Banking, a stable paper money economy, manufacturing and high yields in agriculture resulted in China’s per capita income matching that of Great Britain as late as 1750.

China’s dominant global position was challenged by the rise of British imperialism, which had adopted the advanced technological, navigational, and market innovations of China and other Asian countries in order to bypass earlier stages in becoming a world power {2}.

 

Western Imperialism and the Decline of China

 

The British and Western imperial conquest of the East, was based on the militaristic nature of the imperial state, its non-reciprocal economic relations with overseas trading countries, and the Western imperial ideology which motivated and justified overseas conquest.

Unlike China , Britain’s industrial revolution and overseas expansion was driven by a military policy. According to Hobson, during the period from 1688 to1815 Great Britain was engaged in wars 52% of the time {3}. Whereas the Chinese relied on their open markets and their superior production and sophisticated commercial and banking skills, the British relied on tariff protection, military conquest, the systematic destruction of competitive overseas enterprises, as well as the appropriation and plunder of local resources. China’s global predominance was based on “reciprocal benefits” with its trading partners, while Britain relied on mercenary armies of occupation, savage repression, and a “divide and conquer” policy to foment local rivalries. In the face of native resistance, the British (as well as other Western imperial powers) did not hesitate to exterminate entire communities {4}.

Unable to take over the Chinese market through greater economic competitiveness, Britain relied on brute military power. It mobilized, armed and led mercenaries, drawn from its colonies in India and elsewhere to force its exports on China and impose unequal treaties to lower tariffs. As a result China was flooded with British opium produced on its plantations in India – despite Chinese laws forbidding or regulating the importation and sale of the narcotic. China’s rulers, long accustomed to its trade and manufacturing superiority, were unprepared for the “new imperial rules” for global power. The West’s willingness to use military power to win colonies, pillage resources, and recruit huge mercenary armies commanded by European officers spelt the end for China as a world power.

China had based its economic predominance on “non-interference in the internal affairs of its trading partners”. In contrast, British imperialists intervened violently in Asia , reorganizing local economies to suit the needs of the empire (eliminating economic competitors including more efficient Indian cotton manufacturers) and seized control of local political, economic, and administrative apparatus to establish the colonial state.

Britain’s empire was built with resources seized from the colonies and through the massive militarization of its economy {5}. It was thus able to secure military supremacy over China. China’s foreign policy was hampered by its ruling elite’s excessive reliance on trade relations. Chinese officials and merchant elites sought to appease the British and convinced the emperor to grant devastating extra-territorial concessions opening markets to the detriment of Chinese manufacturers while surrendering local sovereignty. As always, the British precipitated internal rivalries and revolts further destabilizing the country.

Western and British penetration and colonization of China’s market created an entire new class: The wealthy Chinese “compradores” imported British goods and facilitated the takeover of local markets and resources. Imperialist pillage forced greater exploitation and taxation of the great mass of Chinese peasants and workers. China’s rulers were obliged to pay the war debts and finance trade deficits imposed by the Western imperial powers by squeezing its peasantry. This drove the peasants to starvation and revolt.

By the early 20th century (less than a century after the Opium Wars), China had descended from world economic power to a broken semi-colonial country with a huge destitute population. The principle ports were controlled by Western imperial officials and the countryside was subject to the rule by corrupt and brutal warlords. British opium enslaved millions.

 

British Academics: Eloquent Apologists for Imperial Conquest

 

The entire Western academic profession – first and foremost British imperial historians – attributed British imperial dominance of Asia to English “technological superiority” and China’s misery and colonial status to “oriental backwardness”, omitting any mention of the millennium of Chinese commercial and technical progress and superiority up to the dawn of the 19th century. By the end of the 1920s, with the Japanese imperial invasion, China ceased to exist as a unified country. Under the aegis of imperial rule, hundreds of millions of Chinese had starved or were dispossessed or slaughtered, as the Western powers and Japan plundered its economy. The entire Chinese “collaborator” comprador elite were discredited before the Chinese people.

What did remain in the collective memory of the great mass of the Chinese people – and what was totally absent in the accounts of prestigious US and British academics – was the sense of China once having been a prosperous, dynamic, and leading world power. Western commentators dismissed this collective memory of China’s ascendancy as the foolish pretensions of nostalgic lords and royalty – empty Han arrogance.

 

China Rises from the Ashes of Imperial Plunder and Humiliation:
The Chinese Communist Revolution


The rise of modern China to become the second largest economy in the world was made possible only through the success of the Chinese communist revolution in the mid-20th century. The People’s Liberation “Red” Army defeated first the invading Japanese imperial army and later the US imperialist-backed comprador led Kuomintang “Nationalist” army. This allowed the reunification of China as an independent sovereign state. The Communist government abolished the extra-territorial privileges of the Western imperialists, ended the territorial fiefdoms of the regional warlords and gangsters, and drove out the millionaire owners of brothels, the traffickers of women and drugs as well as the other “service providers” to the Euro-American Empire.

In every sense of the word, the Communist revolution forged the modern Chinese state. The new leaders then proceeded to reconstruct an economy ravaged by imperial wars and pillaged by Western and Japanese capitalists. After over 150 years of infamy and humiliation the Chinese people recovered their pride and national dignity. These socio-psychological elements were essential in motivating the Chinese to defend their country from the US attacks, sabotage, boycotts, and blockades mounted immediately after liberation.

Contrary to Western and neoliberal Chinese economists, China’s dynamic growth did not start in 1980. It began in 1950, when the agrarian reform provided land, infrastructure, credits and technical assistance to hundreds of millions of landless and destitute peasants and landless rural workers. Through what is now called “human capital” and gigantic social mobilization, the Communists built roads, airfields, bridges, canals, and railroads as well as the basic industries, like coal, iron and steel, to form the backbone of the modern Chinese economy. Communist China’s vast free educational and health systems created a healthy, literate. and motivated work force. Its highly professional military prevented the US from extending its military empire throughout the Korean peninsula up to China’s territorial frontiers. Just as past Western scholars and propagandists fabricated a history of a “stagnant and decadent” empire to justify their destructive conquest, so too their modern counterparts have rewritten the first thirty years of Chinese Communist history, denying the role of the revolution in developing all the essential elements for a modern economy, state, and society. It is clear that China’s rapid economic growth was based on the development of its internal market, its rapidly growing cadre of scientists, skilled technicians and workers, and the social safety net which protected and promoted working class and peasant mobility were products of Communist planning and investments.

China’s rise to global power began in 1949 with the removal of the entire parasitic financial, compradore, and speculative classes who had served as the intermediaries for European, Japanese, and US imperialists draining China of its great wealth.

 

China’s Transition to Capitalism

 

Beginning in 1980 the Chinese government initiated a dramatic shift in its economic strategy: Over the next three decades, it opened the country to large-scale foreign investment; it privatized thousands of industries and it set in motion a process of income concentration based on a deliberate strategy of re-creating a dominant economic class of billionaires linked to overseas capitalists. China’s ruling political class embraced the idea of “borrowing” technical know-how and accessing overseas markets from foreign firms in exchange for providing cheap, plentiful labor at the lowest cost.

The Chinese state re-directed massive public subsidies to promote high capitalist growth by dismantling its national system of free public education and health care. They ended subsidized public housing for hundreds of millions of peasants and urban factory workers and provided funds to real estate speculators for the construction of private luxury apartments and office skyscrapers. China’s new capitalist strategy as well as its double digit growth was based on the profound structural changes and massive public investments made possible by the previous communist government. China’s private sector “take off” was based on the huge public outlays made since 1949.

The triumphant new capitalist class and its Western collaborators claimed all the credit for this “economic miracle” as China rose to become the world’s second largest economy. This new Chinese elite have been less eager to announce China’s world-class status in terms of brutal class inequalities, rivaling only the US.

 

China: From Imperial Dependency to World Class Competitor

 

China’s sustained growth in its manufacturing sector was a result of highly concentrated public investments, high profits, technological innovations, and a protected domestic market. While foreign capital profited, it was always within the framework of the Chinese state’s priorities and regulations. The regime’s dynamic “export strategy” led to huge trade surpluses, which eventually made China one of the world’s largest creditors especially for US debt. In order to maintain its dynamic industries, China has required huge influxes of raw materials, resulting in large-scale overseas investments, and trade agreements with agro-mineral export countries in Africa and Latin America. By 2010 China displaced the US and Europe as the main trading partner in many countries in Asia, Africa, and Latin America.

Modern China’s rise to world economic power, like its predecessor between 1100 and 1800, is based on its gigantic productive capacity: Trade and investment was governed by a policy of strict non-interference in the internal relations of its trading partners. Unlike the US, China did initiate brutal wars for oil; instead it signed lucrative contracts. And China does not fight wars in the interest of overseas Chinese, as the US has done in the Middle East for Israel.

The seeming imbalance between Chinese economic and military power is in stark contrast to the US where a bloated, parasitic military empire continues to erode its own global economic presence.

US military spending is twelve times that of China. Increasingly the US military plays the key role shaping policy in Washington as it seeks to undercut China’s rise to global power.

 

China’s Rise to World Power: Will History Repeat Itself?

 

China has been growing at about nine percent per annum and its goods and services are rapidly rising in quality and value. In contrast, the US and Europe have wallowed around zero percent growth from 2007 to 2012. China’s innovative techno-scientific establishment routinely assimilates the latest inventions from the West (and Japan ) and improves them, thereby decreasing the cost of production. China has replaced the US and European controlled “international financial institutions” (the IMF, World Bank, the Inter-American Development Bank) as the principle lender in Latin America. China continues to lead as the prime investor in African energy and mineral resources. China has replaced the US as the principle market for Saudi Arabian, Sudanese, and Iranian petroleum and it will soon replace the US as the principle market for Venezuela petroleum products. Today China is the world’s biggest manufacturer and exporter, dominating even the US market, while playing the role of financial life line as it holds over $1.3 trillion in US Treasury notes.

Under growing pressure from its workers, farmers, and peasants, China’s rulers have been developing the domestic market by increasing wages and social spending to rebalance the economy and avoid the specter of social instability. In contrast, US wages, salaries, and vital public services have sharply declined in absolute and relative terms.

Given the current historical trends it is clear that China will replace the US as the leading world economic power, over the next decade, if the US empire does not strike back and if China’s profound class inequalities do not lead to a major social upheaval.

Modern China’s rise to global power faces serious challenges. In contrast to China’s historical ascent on the world stage, modern Chinese global economic power is not accompanied by any imperialist undertakings. China has seriously lagged behind the US and Europe in aggressive war-making capacity. This may have allowed China to direct public resources to maximize economic growth, but it has left China vulnerable to US military superiority in terms of its massive arsenal, its string of forward bases and strategic geo-military positions right off the Chinese coast and in adjoining territories.

In the nineteenth century British imperialism demolished China’s global position with its military superiority, seizing China’s ports – because of China’s reliance on “mercantile superiority”.

The conquest of India , Burma, and most of Asia allowed Britain to establish colonial bases and recruit local mercenary armies. The British and its mercenary allies encircled and isolated China , setting the stage for the disruption of China’s markets and the imposition of the brutal terms of trade. The British Empire’s armed presence dictated what China imported (with opium accounting for over fifty percent of British exports in the 1850s) while undermining China’s competitive advantages via tariff policies.

Today the US is pursuing similar policies: US naval fleet patrols and controls China’s commercial shipping lanes and off-shore oil resources via its overseas bases. The Obama-Clinton White House is in the process of developing a rapid military response involving bases in Australia , Philippines, and elsewhere in Asia. The US is intensifying its efforts to undermine Chinese overseas access to strategic resources while backing “grass roots” separatists and “insurgents” in West China, Tibet, Sudan, Burma, Iran, Libya, Syria, and elsewhere. The US military agreements with India and the installation of a pliable puppet regime in Pakistan have advanced its strategy of isolating China. While China upholds its policy of “harmonious development” and “non-interference in the internal affairs of other countries”, it has stepped aside as US and European military imperialism have attacked a host of China’s trading partners to essentially reverse China’s peaceful commercial expansion.

China’s lack of a political and ideological strategy capable of protecting its overseas economic interests has been an invitation for the US and Nato to set-up regimes hostile to China. The most striking example is Libya where US and Nato intervened to overthrow an independent government led by President Gadhafi, with whom China had signed multi-billion dollar trade and investments agreements. The Nato bombardment of Libyan cities, ports, and oil installation forced the Chinese to withdraw 35,000 Chinese oil engineers and construction workers in a matter of days. The same thing happened in Sudan where China had invested billions to develop its oil industry. The US, Israel, and Europe armed the South Sudanese rebels to disrupt the flow of oil and attack Chinese oil workers {6}. In both cases China passively allowed the US and European military imperialists to attack its trade partners and undermine its investments.

Under Mao Tse Tung, China had an active policy countering imperial aggression: It supported revolutionary movements and independent Third World governments. Today’s capitalist China does not have an active policy of supporting governments or movements capable of protecting China’s bilateral trade and investment agreements. China’s inability to confront the rising tide of US military aggression against its economic interests, is due to deep structural problems. China’s foreign policy is shaped by big commercial, financial, and manufacturing interests who rely on their “economic competitive edge” to gain market shares and have no understanding of the military and security underpinnings of global economic power. China’s political class is deeply influenced by a new class of billionaires with strong ties to Western equity funds and who have uncritically absorbed Western cultural values. This is illustrated by their preference for sending their own children to elite universities in the US and Europe. They seek “accommodation with the West” at any price.

This lack of any strategic understanding of military empire-building has led them to respond ineffectively and ad hoc to each imperialist action undermining their access to resources and markets. While China’s “business first” outlook may have worked when it was a minor player in the world economy and US empire builders saw the “capitalist opening” as a chance to easily takeover China’s public enterprises and pillage the economy. However, when China (in contrast to the former USSR) decided to retain capital controls and develop a carefully calibrated, state directed “industrial policy” directing western capital and the transfer of technology to state enterprises, which effectively penetrated the US domestic and overseas markets, Washington began to complain and talked of retaliation.

China’s huge trade surpluses with the US provoked a dual response in Washington: It sold massive quantities of US Treasury bonds to the Chinese and began to develop a global strategy to block China’s advance. Since the US lacked economic leverage to reverse its decline, it relied on its only “comparative advantage” – its military superiority based on a worldwide system of attack bases, a network of overseas client regimes, military proxies, NGOers, intellectuals, and armed mercenaries. Washington turned to its vast overt and clandestine security apparatus to undermine China’s trading partners. Washington depends on its long-standing ties with corrupt rulers, dissidents, journalists. and media moguls to provide the powerful propaganda cover while advancing its military offensive against China’s overseas interests.

China has nothing to compare with the US overseas “security apparatus” because it practices a policy of “non-interference”. Given the advanced state of the Western imperial offensive, China has taken only a few diplomatic initiatives, such as financing English language media outlets to present its perspective, using its veto power on the UN Security Council to oppose US efforts to overthrow the independent Assad regime in Syria, and opposing the imposition of drastic sanctions against Iran. It sternly repudiated US Secretary of State Hilary Clinton’s vitriolic questioning of the ‘legitimacy’ of the Chinese state when it voted against the US-UN resolution preparing an attack on Syria {7}.

Chinese military strategists are more aware and alarmed at the growing military threat to China. They have successfully demanded a nineteen percent annual increase in military spending over the next five years (2011 to 2015) {8}. Even with this increase, China’s military expenditures will still be less than one-fifth of the US military budget and China has not one overseas military base in stark contrast to the over 750 US installations abroad. Overseas Chinese intelligence operations are minimal and ineffective. Its embassies are run by and for narrow commercial interests who utterly failed to understand Nato’s brutal policy of regime change in Libya and inform Beijing of its significance to the Chinese state.

There are two other structural weaknesses undermining China’s rise as a world power. This includes the highly “Westernized” intelligentsia which has uncritically swallowed US economic doctrine about free markets while ignoring its militarized economy. These Chinese intellectuals parrot the US propaganda about the “democratic virtues” of billion-dollar Presidential campaigns, while supporting financial deregulation which would have led to a Wall Street takeover of Chinese banks and savings. Many Chinese business consultants and academics have been educated in the US and influenced by their ties to US academics and international financial institutions directly linked to Wall Street and the City of London. They have prospered as highly-paid consultants receiving prestigious positions in Chinese institutions. They identify the ‘liberalization of financial markets’ with “advanced economies” capable of deepening ties to global markets instead of as a major source of the current global financial crisis. These “Westernized intellectuals” are like their 19th century comprador counterparts who underestimated and dismissed the long-term consequences of Western imperial penetration. They fail to understand how financial deregulation in the US precipitated the current crisis and how deregulation would lead to a Western takeover of China’s financial system – the consequences of which would reallocate China’s domestic savings to non-productive activities (real estate speculation), precipitate financial crisis, and ultimately undermine China’s leading global position.

These Chinese yuppies imitate the worst of Western consumerist life styles and their political outlooks are driven by these life styles and Westernized identities which preclude any sense of solidarity with their own working class.

There is an economic basis for the pro-Western sentiments of China’s neo-compradors. They have transferred billions of dollars to foreign bank accounts, purchased luxury homes and apartments in London, Toronto, Los Angeles, Manhattan, Paris, Hong Kong, and Singapore. They have one foot in China (the source of their wealth) and the other in the West (where they consume and hide their wealth).

Westernized compradores are deeply embedded in China’s economic system having family ties with the political leadership in the party apparatus and the state. Their connections are weakest in the military and in the growing social movements, although some “dissident” students and academic activists in the “democracy movements” are backed by Western imperial NGO’s. To the extent that the compradors gain influence, they weaken the strong economic state institutions which have directed China’s ascent to global power, just as they did in the 19th century by acting as intermediaries for the British Empire. Proclaiming 19th Century “liberalism”, British opium addicted over fifty million Chinese in less than a decade. Proclaiming “democracy and human rights” US gunboats now patrol off China’s coast. China’s elite-directed rise to global economic power has spawned monumental inequalities between the thousands of new billionaires and multi-millionaires at the top and hundreds of millions of impoverished workers, peasants, and migrant workers at the bottom.

China’s rapid accumulation of wealth and capital was made possible through the intense exploitation of its workers who were stripped of their previous social safety net and regulated work conditions guaranteed under Communism. Millions of Chinese households are being dispossessed in order to promote real estate developer/speculators who then build high rise offices and the luxury apartments for the domestic and foreign elite. These brutal features of ascendant Chinese capitalism have created a fusion of workplace and living space mass struggle which is growing every year. The developer/speculators’ slogan “to get rich is wonderful” has lost its power to deceive the people. In 2011 there were over 200,000 popular encompassing urban coastal factories and rural villages. The next step, which is sure to come, will be the unification of these struggles into new national social movements with a class-based agenda demanding the restoration of health and educational services enjoyed under the Communists as well as a greater share of China’s wealth. Current demands for greater wages can turn to demands for greater work place democracy. To answer these popular demands China’s new compradore-Westernized liberals cannot point to their “model” in the US empire where American workers are in the process of being stripped of the very benefits Chinese workers are struggling to regain.

China , torn by deepening class and political conflict, cannot sustain its drive toward global economic leadership. China’s elite cannot confront the rising global imperial military threat from the US with its comprador allies among the internal liberal elite while the country is a deeply divided society with an increasingly hostile working class. The time of unbridled exploitation of China’s labor has to end in order to face the US military encirclement of China and economic disruption of its overseas markets. China possesses enormous resources. With over $1.5 trillion dollars in reserves, China can finance a comprehensive national health and educational program throughout the country.

China can afford to pursue an intensive “public housing program” for the 250 million migrant workers currently living in urban squalor. China can impose a system of progressive income taxes on its new billionaires and millionaires and finance small family farmer co-operatives and rural industries to rebalance the economy. Their program of developing alternative energy sources, such as solar panels and wind farms – are a promising start to addressing their serious environmental pollution. Degradation of the environment and related health issues already engage the concern of tens of millions. Ultimately China’s best defense against imperial encroachments is a stable regime based on social justice for the hundreds of millions and a foreign policy of supporting overseas anti-imperialist movements and regimes – whose independence are in China’s vital interest. What is needed is a pro-active policy based on mutually beneficial joint ventures including military and diplomatic solidarity. Already a small, but influential, group of Chinese intellectuals have raised the issue of the growing US military threat and are “saying no to gunboat diplomacy” {9}.

Modern China has plenty of resources and opportunities, unavailable to China in the 19th century when it was subjugated by the British Empire. If the US continues to escalate its aggressive militaristic policy against China , Beijing can set off a serious fiscal crisis by dumping a few of its hundreds of billions of dollars in US Treasury notes. China , a nuclear power should reach out to its similarly armed and threatened neighbor, Russia , to confront and confound the bellicose rantings of US Secretary of State, Hilary Clinton. Russian President-to-be Putin vows to increase military spending from three percent to 3% to six percent of the GDP over the next decade to counter Washington’s offensive missile bases on Russia’s borders and thwart Obama’s “regime change” programs against its allies, like Syria {10}.

China has powerful trading, financial and investment networks covering the globe as well as powerful economic partners. These links have become essential for the continued growth of many of countries throughout the developing world. In taking on China , the US will have to face the opposition of many powerful market-based elites throughout the world. Few countries or elites see any future in tying their fortunes to an economically unstable empire-based on militarism and destructive colonial occupations.

In other words, modern China , as a world power, is incomparably stronger than it was in early 18th century. The US does not have the colonial leverage that the ascendant British Empire possessed in the run-up to the Opium Wars. Moreover, many Chinese intellectuals and the vast majority of its citizens have no intention of letting its current “Westernized compradors” sell out the country. Nothing would accelerate political polarization in Chinese society and hasten the coming of a second Chinese social revolution more than a timid leadership submitting to a new era of Western imperial pillage.

Notes:

{1} John Hobson, The Eastern Origins of Western Civilization (Cambridge UK: Cambridge University Press 2004)

{2} Ibid, Ch. 9 pp. 190 -218

{3} Ibid, Ch. 11, pp. 244-248

{4} Richard Gott, Britain’s Empire: Resistance, Repression and Revolt (London : Verso 2011) for a detailed historical chronicle of the savagery accompanying Britain’s colonial empire.

{5} Hobson, pp. 253 – 256.

{6} Katrina Manson, “South Sudan puts Beijing’s policies to the test”, Financial Times, 2/21/12, p. 5.

{7} Interview of Clinton NPR, 2/26/12.

{8} La Jornada, 2/15/12 (Mexico City).

{9} China Daily (2/20/2012)

{10} Charles Clover, “Putin vows huge boost in defense spending”, Financial Times, 2/12/2012

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Copyright (c) Professor James Petras, Global Research, 2019

https://www.globalresearch.ca/china-rise-fall-and-re-emergence-as-a-global-power-2/29644